Construction output up but new orders down

13 Mar New data from the Office for National Statistics show that construction output rose 2.7% in January, reversing the sharp decline seen in December 2018.

Over the three months to the end of January 2019, construction output was 0.6% lower than for the previous three months. Declines in repair & maintenance and private housing output drove the fall.

Construction output in January 2019 was 1.8% than it was in January 2018.

The ONS release also showed that the volume of new construction orders in the fourth quarter of 2018 fell 1.9% compared to the third quarter and was down 10.5% year-on-year.

Rebecca Larkin, senior economist at the Construction Products Association, commented: “Combined, private housing, commercial and private housing RM&I account for half of total construction output so any weakness in these sectors will provide an unavoidable drag on overall activity. The last three months of data have been as volatile as the political backdrop, but looking at the broader picture, output has remained at relatively high levels over the last 12 months.

“New orders in 2018 declined to the lowest level since 2012 and there are clear struggles to gain traction in the commercial and public housing sectors. Investment decisions on major offices and retail developments have stalled, not surprisingly, due to the lengthy period of economic uncertainty, but the record-low level of new orders in public housing is concerning given the government’s shift in policy focus to increase building by local authorities and housing associations.”

Scape Group chief executive Mark Robinson said: “The construction sector’s traditionally sluggish December was slowed down even further by the gloomy economic backdrop. But activity made a U-turn in January. Businesses were no longer prepared to wait out the Brexit storm and are started getting on with the business of building. The pick-up in repairs and maintenance and new infrastructure work demonstrates that.

“That uptick could end up being temporary. Theresa May is taking it to the wire with Brexit, and there are just days left to finalise a deal. With no time to tie up loose ends, and zero clarity on how the UK can continue to assess essential construction talent from the EU, the industry will likely be left in the lurch.”

Blane Perrotton, managing director of surveyors Naismiths, said: “Across much of the industry, the pipeline of new work has slowed to a trickle. The final months of 2018 saw the number of new orders slip from stagnation into reverse, meaning many builders now have skinnier order books than they have had in years.

“The one ray of light is that house-builders continue to buck that trend. The combination of Britain’s housing crisis, low interest rates and developer-friendly incentives such as the Help to Buy scheme is propping up residential demand and keeping the orders coming in. But on the front line, work on residential projects is easing off, as contractors increasingly have gaps between completing one job and moving onto the next.

“While January’s output figures put housebuilders into unfamiliar territory – as also-rans – the picture was brightened by better performance in public sector and infrastructure work.

“Nevertheless, confidence is brittle at best. Last week’s PMI data showed sentiment has plunged back into negative territory, and intense competition for the little work that is being put out to tender is forcing contractors to bid painfully low.”

Clive Docwra, managing director of McBains, said: “The January figures are moderately encouraging, especially given the shadow of a no-deal Brexit looming large, which we expected to see reflected in a contraction – or at least a slowdown – in output.

“However, the real test of the resilience of the construction sector will be in the months to come. Many of our clients are telling us they are biding their time before they commit to investing in new projects until the whole Brexit situation becomes clearer, as evidenced by today’s statistics showing a fall in new orders over the last quarter of 2018. The next few months could prove to be a crunch point for the industry.”